The Federal Tax Authority (FTA) has released its updated VAT Guide on the Profit Margin Scheme (VATGPM1 – January 2026), providing further clarity on how VAT should be applied when reselling eligible goods in the UAE.
Key Highlights:
- The scheme applies to second-hand goods, antiques, and collectors’ items, provided the goods were previously subject to VAT and no input tax was claimed.
- VAT is calculated only on the profit margin (Selling Price – Purchase Price), not on the full selling price.
- The profit margin is VAT-inclusive, meaning VAT is extracted from the margin.
- Where goods are sold at a loss or at break-even, no VAT is payable.
- Resellers must maintain proper records and issue tax invoices stating “VAT charged under the Profit Margin Scheme”, without separately disclosing the VAT amount.
- The scheme helps prevent VAT cascading, particularly when goods are purchased from non-registrants or where input tax recovery is blocked under Article 53 of the VAT Executive Regulation.
Example:
A business purchases used machinery for AED 120,000 and later resells it for AED 150,000.
Profit Margin = AED 30,000
VAT payable = AED 30,000 × (5 ÷ 105)
VAT = AED 1,428.57
Why it matters:
This updated guidance enhances certainty for businesses dealing in eligible goods, reduces compliance risks, and ensures fair VAT treatment in the resale market.
📄 Download the full FTA VAT Guide on the Profit Margin Scheme (VATGPM1 – January 2026) here: [Value Added Tax Guide]